COMPENSATION

11/18/2014

By:

Jared Stier

Keith York Puckett

Rachel Webb

Travis Weidermann

For Dr. Hoffman Human Resources Management MGT 3530-001

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Table of Contents

Executive Summary……………………………………………… 2

Introduction …………………………………………………….... 3

The Law……………..………………………………………….... 4

Fair Labor Standards Act ( FLSA) ……………………… 4

The Equal Pay Act ………………………………………. 8

Workers Compensation …………………….…………… 8

Market Pricing……………….……………………………….….. 9

Compensation surveys…………………………………… 9

Benchmark Jobs…………………………………………... 9

Job Evaluation Methods…………………………..……................ 10

Ranking Method …………………………………………. 10

Job Classification Method.……………………………….. 10

Point Factor Method………………………………………. 10

Compensable Factor………………………………………. 10

Job Pricing……………..…………………………..……............... 11

References …..………………………………………………..….. 12

Appendices……………………………………………………..… 13

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Executive Summary

ObjectiveAuto Pros, LLC is a full service auto repair center providing preventive and comprehensive

repair services for both foreign and domestic automobiles. The company is a family owned business and as such it is the focus of the owners Edgar and J Leon. While the company currently employs one auto mechanic full time and no other employees (other than the owners), there is pressure on this expanding business to identify and acquire not only additional certified mechanics but also to attract qualified office staff. The end goal is to have not only multiple locations under the Auto Pro name, the goal includes the replacement of JXXX with competent office/bookkeeping staff as well as to attract long term quality mechanical staff so that Mr. Leon can focus on the managerial aspects of the business. It order to achieve its long term goals, Auto Pros LLC while need to:

Understand applicable laws regarding compensation Separate direct compensation (financial and non-financial) from indirect compensation

(benefits) Determine methods for compensating various types of employees Determine Market Pricing Understand Job evaluation for ongoing retention

The following is offered as an overview of the above mentioned objectives. It may be used to help guide Auto Pro’s toward its long term goals of attracting quality employees, survey different compensation systems, look at some of the pros and cons of such systems, as well as how to retain long term employees through compensation strategies.

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Introduction

Compensation is a significant portion of any organizations Human Resources activities and as such can be an important factor on how well organizations perform in the market place. Employees that are fairly compensated for the work that they provide an organization tend to stay longer, produce more, and need less in the way of motivation.

Compensation can come in many forms. Direct financial compensation is measured in the forms of wages, salaries, bonuses, and commissions that an employee exchanges for labor, expertise, and efforts on behalf of the company. While direct financial compensation is by far the largest component of compensation that an employee receives, it is not the only type of compensation that employees have grown to expect for their employment activities. Indirect financial compensation (benefits) may include items that are not part of the direct financial package. Examples of these types of indirect compensation include such things as vacation pay, health insurance, and company provided meals. Further, non-financial compensation can be quite motivating and can include things such as flexible work schedules to deal with life/work balance issues, remote work from home options, and casual dress days.

For the purposes of this report, the focus shall be of the direct financial compensation component. Understanding the law as it relates to compensation, how to Price Job categories, how to evaluate performance. Indirect financial compensation (benefits) are covered in preceding sections of this Human Resources report. Non-financial compensation such as flexible work schedules, remote work activities, and casual dress codes can and should be introduced on a case by case basis outside of the direct financial compensation component of this Human Resources function.

The Law

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Fair Labor Standards Act ( FLSA)

The Fair Labor Standards Act (FLSA) , which prescribes standards for the basic minimum wage and overtime pay, affects most private and public employment. It requires employers to pay covered employees who are not otherwise exempt at least the federal minimum wage and overtime pay of one-and-one-half-times the regular rate of pay. For nonagricultural operations, it restricts the hours that children under age 16 can work and forbids the employment of children under age 18 in certain jobs deemed too dangerous. For agricultural operations, it prohibits the employment of children under age 16 during school hours and in certain jobs deemed too dangerous. The Act is administered by the Employment Standards Administration's Wage and Hour Division within the U.S. Department of Labor.

Basic Wage Standards

Covered, nonexempt workers are entitled to a minimum wage of $7.25 per hour effective July 24, 2009. Special provisions apply to workers in American Samoa and the Commonwealth of the Northern Mariana Islands. Nonexempt workers must be paid overtime pay at a rate of not less than one and one-half times their regular rates of pay after 40 hours of work in a workweek.

Wages required by the FLSA are due on the regular payday for the pay period covered. Deductions made from wages for such items as cash or merchandise shortages, employer-required uniforms, and tools of the trade, are not legal to the extent that they reduce the wages of employees below the minimum rate required by the FLSA or reduce the amount of overtime pay due under the FLSA.

The FLSA contains some exemptions from these basic standards. Some apply to specific types of businesses; others apply to specific kinds of work.

While the FLSA does set basic minimum wage and overtime pay standards and regulates the employment of minors, there are a number of employment practices which the FLSA does not regulate.

For example, the FLSA does not require:

1. vacation, holiday, severance, or sick pay;

2. meal or rest periods, holidays off, or vacations;

3. premium pay for weekend or holiday work;

4. pay raises or fringe benefits; or

5. a discharge notice, reason for discharge, or immediate payment of final wages to terminated employees.

The FLSA does not provide wage payment or collection procedures for an employee’s usual or promised wages or commissions in excess of those required by the FLSA. However, some States do have laws under which such claims (sometimes including fringe benefits) may be filed.

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Also, the FLSA does not limit the number of hours in a day or days in a week an employee may be required or scheduled to work, including overtime hours, if the employee is at least 16 years old.

The above matters are for agreement between the employer and the employees or their authorized representatives.

Computing Overtime Pay

Overtime must be paid at a rate of at least one and one-half times the employee’s regular rate of pay for each hour worked in a workweek in excess of the maximum allowable in a given type of employment. Generally, the regular rate includes all payments made by the employer to or on behalf of the employee (except for certain statutory exclusions). The following examples are based on a maximum 40-hour workweek applicable to most covered nonexempt employees.

1. Hourly rate (regular pay rate for an employee paid by the hour) - If more than 40 hours are worked, at least one and one-half times the regular rate for each hour over 40 is due.

Example: An employee paid $8.00 an hour works 44 hours in a workweek. The employee is entitled to at least one and one-half times $8.00, or $12.00, for each hour over 40. Pay for the week would be $320 for the first 40 hours, plus $48.00 for the four hours of overtime - a total of $368.00.

2. Piece rate - The regular rate of pay for an employee paid on a piecework basis is obtained by dividing the total weekly earnings by the total number of hours worked in that week. The employee is entitled to an additional one-half times this regular rate for each hour over 40, plus the full piecework earnings.

Example: An employee paid on a piecework basis works 45 hours in a week and earns $405. The regular rate of pay for that week is $405 divided by 45, or $9.00 an hour. In addition to the straight-time pay, the employee is also entitled to $4.50 (half the regular rate) for each hour over 40 - an additional $22.50 for the 5 overtime hours - for a total of $427.50.

Another way to compensate pieceworkers for overtime, if agreed to before the work is performed, is to pay one and one-half times the piece rate for each piece produced during the overtime hours. The piece rate must be the one actually paid during non-overtime hours and must be enough to yield at least the minimum wage per hour.

3. Salary - The regular rate for an employee paid a salary for a regular or specified number of hours a week is obtained by dividing the salary by the number of hours for which the salary is intended to compensate. The employee is entitled to an additional one-half times this regular rate for each hour over 40, plus the salary.

Exemptions

Some employees are exempt from the overtime pay provisions or both the minimum wage and overtime pay provisions.

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Because exemptions are generally narrowly defined under the FLSA, an employer should carefully check the exact terms and conditions for each. Detailed information is available from local WHD offices.

Following are examples of exemptions which are illustrative, but not all-inclusive. These examples do not define the conditions for each exemption.

Exemptions from Both Minimum Wage and Overtime Pay

1.Executive, administrative, and professional employees (including teachers and academic administrative personnel in elementary and secondary schools), outside sales employees, and employees in certain computer-related occupations (as defined in DOL regulations);

2.Employees of certain seasonal amusement or recreational establishments, employees of certain small newspapers, seamen employed on foreign vessels, employees engaged in fishing operations, and employees engaged in newspaper delivery;

3.Farmworkers employed by anyone who used no more than 500 “man-days” of farm labor in any calendar quarter of the preceding calendar year;

4.Casual babysitters and persons employed as companions to the elderly or infirm.

Exemptions from Overtime Pay Only

1.Certain commissioned employees of retail or service establishments; auto, truck, trailer, farm implement, boat, or aircraft sales-workers; or parts-clerks and mechanics servicing autos, trucks, or farm implements, who are employed by non-manufacturing establishments primarily engaged in selling these items to ultimate purchasers;

2.Employees of railroads and air carriers, taxi drivers, certain employees of motor carriers, seamen on American vessels, and local delivery employees paid on approved trip rate plans;

3.Announcers, news editors, and chief engineers of certain non-metropolitan broadcasting stations;

4.Domestic service workers living in the employer’s residence;

5.Employees of motion picture theaters; and

6.Farmworkers.

Partial Exemptions from Overtime Pay

1.Partial overtime pay exemptions apply to employees engaged in certain operations on agricultural commodities and to employees of certain bulk petroleum distributors.

2.Hospitals and residential care establishments may adopt, by agreement with their employees, a 14-day work period instead of the usual 7-day workweek if the employees are paid at least time and one-half their regular rates for hours worked over 8 in a day or 80 in a 14-day work period, whichever is the greater number of overtime hours.

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3.Employees who lack a high school diploma, or who have not attained the educational level of the 8th grade, can be required to spend up to 10 hours in a workweek engaged in remedial reading or training in other basic skills without receiving time and one-half overtime pay for these hours. However, the employees must receive their normal wages for hours spent in such training and the training must not be job specific.

4.Public agency fire departments and police departments may establish a work period ranging from 7 to 28 days in which overtime need only be paid after a specified number of hours in each work period.

Record Keeping

The FLSA requires employers to keep records on wages, hours, and other items, as specified in DOL recordkeeping regulations. Most of the information is of the kind generally maintained by employers in ordinary business practice and in compliance with other laws and regulations. The records do not have to be kept in any particular form and time clocks need not be used. With respect to an employee subject to the minimum wage provisions or both the minimum wage and overtime pay provisions, the following records must be kept:

1.personal information, including employee’s name, home address, occupation, sex, and birth date if under 19 years of age;

2.hour and day when workweek begins;

3.total hours worked each workday and each workweek;

4.total daily or weekly straight-time earnings;

5.regular hourly pay rate for any week when overtime is worked;

6.total overtime pay for the workweek;

7.deductions from or additions to wages;

8.total wages paid each pay period; and

9.date of payment and pay period covered.

Records required for exempt employees differ from those for nonexempt workers. Special information is required for homeworkers, for employees working under uncommon pay arrangements, for employees to whom lodging or other facilities are furnished, and for employees receiving remedial education.

The Equal Pay Act

Equal Pay/Compensation Discrimination

The Equal Pay Act requires that men and women in the same workplace be given equal pay for equal work. The jobs need not be identical, but they must be substantially equal. Job content (not

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job titles) determines whether jobs are substantially equal. All forms of pay are covered by this law, including salary, overtime pay, bonuses, stock options, profit sharing and bonus plans, life insurance, vacation and holiday pay, cleaning or gasoline allowances, hotel accommodations, reimbursement for travel expenses, and benefits. If there is an inequality in wages between men and women, employers may not reduce the wages of either sex to equalize their pay.

An individual alleging a violation of the EPA may go directly to court and is not required to file an EEOC charge beforehand. The time limit for filing an EPA charge with the EEOC and the time limit for going to court are the same: within two years of the alleged unlawful compensation practice or, in the case of a willful violation, within three years. The filing of an EEOC charge under the EPA does not extend the time frame for going to court.

Equal Pay/Compensation and Sex Discrimination

Title VII also makes it illegal to discriminate based on sex in pay and benefits. Therefore, someone who has an Equal Pay Act claim may also have a claim under Title VII.

Other Types of Discrimination

Title VII, the ADEA, and the ADA prohibit compensation discrimination on the basis of race, color, religion, sex, national origin, age, or disability. Unlike the EPA, there is no requirement under Title VII, the ADEA, or the ADA that the jobs must be substantially equal.

Workers Compensation

https://www.colorado.gov/pacific/cdle/node/20371

All public and private employers in Colorado, with limited exceptions, must provide workers' compensation coverage for their employees if one or more full- or part-time persons are employed. A person hired to perform services for pay is presumed by law to be an employee. This includes all persons elected or appointed to public sector service and all persons appointed or hired by private employers for remuneration. There are a few exemptions to this definition.

Workers’ compensation insurance coverage is paid by the employer. Employers purchase insurance coverage through a commercial insurance carrier or, if qualified, through self-insurance programs. No portion of the premium may be deducted from an employee’s wages.

In Colorado, there are three ways in which an employer may obtain workers' compensation coverage:

•Commercial Insurance;

•Self-Funding (Individual); or

•Self-Funding (Groups and/or Pools)

Employer Requirements

•Obtain and maintain workers’ compensation insurance

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•Display a Notice to Employer of Injury poster at all times

•Keep a record of all lost time injuries and occupational diseases

•Report lost time injuries by filing the Employer's First Report of Injury with the insurer within 10 days (insurer sends form to Division)

•File a Supplemental Report of Accident form with the insurer upon an employee's return to work or termination from employment Coverage Rejection

For evidence of rejection of Workers' Compensation coverage by sole proprietors, and/or partners performing construction work as well as corporate officers, members of an LLC who are also at least 10% owners of the business and participate in the daily operations and/or management of the business.

Market Pricing

Market Pricing Definition

Market Pricing is the use of external sources to understand how other similar jobs are compensated. In the case of a mechanic market pricing would find out what others are paying for similar positions. The market price identifies the economic worth of the job and what an employer needs to attract and retain qualified workers. Most organizations at or above market prices in the 40th and 75th percentiles is common. The use of an accurate job analyses is important to compare other positions. The more specialized the job the more difficult it is to find a market price. Useful website for finding market price includes:

Onetonlice.com

salariesreview.com

salary.com

salaryexpert.com

acinet.org

collegegrad.com

jobstar.org

rileyguide.com

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Compensation surveys

Compensation surveys are surveys of other organizations to understand compensation for a specific job. These can often be purchased online and there are couples of free sites such as payscale.com and salary.com that offer these services. There is not a survey for every job but this can be a good place to start when determining compensation for a position. 10 to 20 percent of jobs value positions at a different rate in these cases the overall accuracy of compensation is impacted. The benefit to a survey is that it provides cheap secondary data to get a good starting point for a market price. The downfall of survey is that if used solely, the survey information is prone to statistical anomalies.

Benchmark Jobs

Benchmark Jobs are positions are a part of highly diverse organizations and departments. They may have different titles but the job analysis is close enough for comparison. These jobs can be used to better indentify compensation for a particular position. Smaller companies often need to keep high talent without high end salaries. These companies to this by creating a work environment and intrinsic benefits for employees that work there. These factors can help smaller companies keep competitive advantage without in their resources.

The worth of a mechanic has changed a lot over the last couple decades or so. A good mechanic now has to have a lot of computer knowledge as well as car knowledge to be successful in their field. With the advancement of car technology, cars are no longer just machinery; the car is a system now. Modern cars have a number of computers in them in order to allow them to run properly. These computer systems monitor sensors in the car as well as other car performance readings. These computers are there to detect issues in the car and if they do, sometimes the cars stop working or running properly. When this happens you need an experienced diagnostics mechanic to look at those readings from these computers to determine what is wrong with the car. Many times the computer will say there is something wrong with one part of the car because that reading is not what it should be, but when in reality it could be something completely different that is effecting how that sensor reacts. The ability for a modern mechanic to do this is very important to that mechanics success in today’s market.

The issues with getting someone that is qualified enough to do this work, is that those mechanics are very hard to come by because they are worth a lot of money to whoever has them. When you have a great diagnostics mechanic, you can rely on them to determine what needs to be done, and the technicians then take care of the work. The difference in the grades of diagnostics mechanics greatly affect how many technicians can be managed by the mechanic. There are roughly four grades of mechanics, going from level 1 being the highest to level 4 being the lowest. These levels also determine the mechanics worth and pay rate. The demand for the level 1 mechanic is in very high, and is averaging $120,000 a year. These are the mechanics that take the time to take

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refresher courses in order to stay current on the latest technologies in cars. Mid-level mechanics average around $75,000 a year because they are not quite to the level 1 mechanics skill and knowledge. Lower level mechanics average somewhere between $30,000 and $50,000 a year, these are those who are just getting started in the industry usually, or the mechanics that don’t really care as much as the level 1.

Technician pay rates are usually $10 an hour, and go off of the flag time pay for the job that they are doing. This pay is determined by a book called the Labor Guide that says how long a job should take to become completed; the tech is only paid for that amount of time in the book, so if it takes them longer or shorter they still make the same amount. This is sometimes problematic for a new and inexperienced technician, if the tech has only done something once, it will usually take them longer to complete the work, so they make less money, and increase the outflow time of finished cars.

Job Evaluation Methods

Definition

This is a systematic process that uses expert judgment to assess differences in value between jobs. The job evaluation does not give information on employees performance or pay but merely compares different job within an organization.

Ranking Method

The ranking method numbers jobs from most to least according to the worth they bring to the company. The difficulty of the job as well as skill, mental and physical effort, and responsibilities can be factors in determining a job rank. Comparing fewer than 30 positions is

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preferable because of the level of evaluation of each factor. The determination of pay level is subjective much like the factors of the ranking but can define compensation for positions well.

Job Classification Method

This method subjectively classifies jobs into an existing hierarchy of grades or categories. Each level or grade has a description and list associated job titles and is given a grade based on overall duties. Using a common set of standards insures a fair assessment of grades. The Job Classification method builds a hierarchy of the jobs at an organization that can be beneficial for determining compensation. An example might:

Class Description

1 Executives including owners and management.

2 Skilled workers including mechanics.

3 Semi skilled workers including receptionists and customer service specialists.

Point Factor Method

A Point Factor Method is job evaluation that uses a set of subjective compensational factors to determine each job value. Each compensation factor is given a point value. A compensation factor is any characteristic used to provide a basis for judging a job’s value. Common compensation factors are Skill, Responsibilities, Effort, and Working Conditions. Each of the factors are subdivided into levels which are assigned points. Weights are established for every compensational factor is used to provide a overall score for a position. These overall scores are given salaries for example points 200 to 250 get a salary of 50,000 a year. This method helps the process of evaluating jobs become more systematic and analytical.

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Third party job evaluation resources

The Hay Group Guide Chart Profile is a similar point factor system that factors including Know-how, problem solving, accountability, working conditions. A profile is then created to weight each of the factors to reflect the size and nature of the job. The benefits to this method are that it uses an extension of traditional point factor models and has been used since the 1950’s. The downside is that this method had been reported to bias because it chooses factors that apple to traditional management values that have dominated by male professionals.

Position Analysis Question or PAQ is a job analysis technique that uses actual statistical data from labor markets to evaluate jobs instead of subjective factors. The PAQ is a structured job evaluation questionnaire that is sub-divided into six sections covering 187 job elements. The publisher controls all of the information and a computer processes the score for each job. The benefit to this method is a uses real world data.

Job Pricing

The job pricing involves the salary structure and pay levels based on job evaluation data. The three types of pricing are single-rate system, pay grades and broad banding.

Single Rate- is a single rate that is pays the same for every individual at that position. There is no performance difference and job that have to be done a certain way such as assembly line positions work well in the pricing.

Pay Grade- is a pricing that that varies based on how much experience they have had with the company.

Broadbanning- is a pricing that allows for a wide variety of wages to increase pay flexibility. This method is used to give managers more control over the way they want to pay worker. This method can be costly and give pay above market prices but gives managers more autonomy in their compensation.

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Pricing for the services that are provided by the auto shop should be partially based off of the labor guide book. The book will determine the time a specific task should take and based on that time and the equipment required to do that specific job, and will help to determine what should be charged to the customer. This gives the shop owner the ability to charge similarly to the way the labor guide specifies, but also gives them the opportunity to modify it as well. For example, the parts that are needed to replace the current parts in the car have a price just to attain them; the auto shop could choose to add an additional fee to those parts to draw a profit just from going through the hassle of attaining those parts. The auto shop could also have other charges that would only be implemented if the vehicle was not picked up by the time they had agreed upon, as a sort of storage fee which is common among many auto shops and other businesses as well. There is a balance though on what they can and cannot charge the customer because they want to make a profit but also do not want to be squeezing the customer because a big part of making a profit is retaining those customers. Finding that balance of being affordable to the customers but still profitable is of great importance to the owner.

Charging an additional shop fee to the work that is done on a car is a must in order to stay profitable. All of the materials used, whether it be rags, oil, cleaning supplies, etc., don’t pay for themselves so adding the fee to the customers helps balance that cost rather than paying those costs out of pocket. One thing a shop may consider is paying for a tech or mechanic to attend a refresher course or new certification courses. The major thing to watch out for when doing so is making sure that the shop does not pay for the course or certification just for that person to leave right after because they are now more marketable and worth more to another business, there should always be a written contract stating that they are obligated to stay with the company for X amount of days until they can leave without having to pay a penalty or for the courses. It may be a better idea to not pay for the classes and tell the workers that if they attend these classes and or receive new certifications they can get a significate pay increase, or some other incentive to keep them up to date on the technology in the cars.

Interview

Separate locations versus expanding a single location. There can be there pros and cons for each, but in most cases, opening a separate location is more harm to the business than help. The company also must have a very large clientele in order to open a second location. Having separate locations means that the head mechanic now has to divide their time between the two locations, so they can’t always see what is going on at both at once. The biggest issue a business faces when this occurs is stealing from the business because they are not constantly supervised. It is much easier for a head mechanic to lose control over one or both of their shops because of the split. In some cases it may work out, if the mechanic finds someone that they can trust running the other shop while they stay at theirs. The issue still remains though, if you own that other shop and you don’t know what they are doing there, they can still undercut you, making this method

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pretty risky still. The same can happen in just one shop though, if the mechanic allows the techs to talk with the customers, there is a chance they are telling the customers that they can do it cheaper if they come to them on a different day, undercutting the mechanic and taking profit from the business. This is why it is always a good idea to not allow the techs to speak with the customers unless the mechanic is there with them.

Having just the single location allows for the company to grow in a different fashion, instead of splitting locations, they make their shop larger, or they move to a new location that is larger and can accommodate more people. This allows the company to hire more techs, and possibly have more than one diagnostic mechanic because usually one mechanic can easily manage 4 techs, more than 4 it gets a little more difficult. This allows for much more work to get done at one time, two diagnostics guys allows for up to about 8 technicians, and a greater in and outflow of cars. It may come to the point where the head mechanic is then just checking the 2 other diagnostics mechanics making sure everything is done correctly all in one shop, not missing anything like if they split locations. If all is done correctly, the business can easily turn $1 million in a year fairly early on, so the bigger the company gets the more they can make after.

An example is NAPA Gold mechanic shops, these shops are not run by NAPA, but rather are just licensees of the NAPA name. This offers customers a big name that they feel they can trust, while getting a NAPA warranty, but each shop is individually managed. These shops pay somewhere around $12,000 a year just to have the NAPA signs at their shop.

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References

http://www.dol.gov/whd/regs/compliance/hrg.htm

http://www.eeoc.gov/laws/types/equalcompensation.cfm

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https://www.colorado.gov/pacific/cdle/node/20371

Lopez, D. (2014, 11 11). Auto Mechanic. (T. Weidemann, Interviewer)

Appendix

Job Evaluation

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